Passing along a car in the family isn’t just kid’s play

"Free gift" isn't so free after the paperwork, vehicle testing and insurance

When passing a vehicle to a member of the family, make sure to follow all the procedures of your provincial jurisdiction.Getty Images

Thinking of giving a vehicle to your niece? Maybe grandma has announced she’s hanging up the keys and is ready to let her adored grandson drive that Buick like it’s never been driven before. There’s an adage that says no good deed goes unpunished, and that holds true when it comes to transferring the ownership of cars.

Having to pay tax on a used car has long stuck in many craws. Taxing used goods that have already been taxed once, at their original point of purchase, is irritating. I’m not here to argue politics, but to instead share what I’ve learned while doing the used car waltz recently within the family.

My sister gave me her car. It’s a mint condition 2002 RAV4 that has been babied since it rolled off the line. With low mileage and having been scrupulously maintained, I’d told her for years that whenever she wanted to sell it, I wanted to know. With two kids still at home, one who commutes for school and one who works, we do a car juggle most days. Factor in one car that was becoming increasingly unreliable but not worth fixing and the juggle got more intense.

I knew there were sales tax exemptions for vehicles that are gifted between family members, but I had no idea who qualified. And unless you’re someone who frequently registers cars, the process can be a little daunting. Each province has its own regulations (go to your provincial transportation ministry website for specifics) but here in Ontario there were a lot of hoops to jump through.

Most provinces have a statute that allows you to avoid the provincial or harmonized tax on a car gifted to immediate family members, but there is a list of whom they consider “immediate”. Nieces and nephews are not immediate; spouses, children, grandparents, grandchildren and siblings are all in the family. The good news? Yes to step- and half-children; the bad? No to your brother-in-law.

Most sites let you download a statement that you fill out declaring you’re not defrauding the government. Both parties go to a ministry office and swear the transfer is a gift before a commissioner, or you can get a notary to do it.

My sister lives in another city, so we had to coordinate this. Be prepared to set aside some time. Even though no money was changing hands, to register the vehicle in my name, it had to have a safety standards test done. In Ontario, you will need a Drive Clean emissions test done, though they are good for one year, so ask the gifter to check their records. A safety certificate is not required when gifting a vehicle between spouses in Ontario.

Because I couldn’t register or plate the vehicle in my name until these tests were done, my sister kept the vehicle insured and plated as we dropped it off at the mechanics. When you call your insurance, you will need the Vehicle Identification Number (VIN), make, model, year, and mileage. It can take a week to ten days to get updated slips so request they email you a document you can print off as proof on insurance. If the car isn’t plated, you can also get a temporary trip permit (usually valid for 7-10 days, again, check where you live) and add another cost to the total. No, you can’t just slap a pair of plates onto the car. Well, you could, but you shouldn’t.

On a side note: if you buy a used car and figure you’ll just dummy up a receipt save on the amount of tax you will be required to pay, be careful. I mean, don’t do it, of course, but if you do, know that they will look up the value of the vehicle you are purchasing and use their own number if they think yours is ludicrous. If you’re buying a heap that is legitimately worth less than the range outlined in whichever value listing (blue or black book) used in your province, you will need an appraisal done to convince them.

Back at the Service Ontario counter, I laid out all the necessary documents for the transfer: safety certificate, emissions test, proof of insurance, driver’s licence, sworn gift declaration and signed ownership. In most cases, while you can sell or give a car to someone without a safety or insurance, they can’t register it without them, nor can someone without a driver’s licence register a car in their name. I also didn’t have to have a Used Vehicle Information package usually required when transferring a car, due to the gift status.

Go to your provincial website to see if you can take advantage of ways to save money if you’re moving a car around within the family. There are a lot of required steps, but it’s worth it.